Manufacturing confidence increased by four index points to 42 in the first quarter of 2013, according a survey by the Bureau for Economic Research (BER) released on Monday.
Although this was the index's third consecutive increase, it remained below the level of 47 reached in the first quarter of 2012.
Lisette Ijssel de Schepper, an economist at BER at the University of Stellenbosch, said the main positive result which came out of the survey was a notable improvement in export performance.
"Both the indicator for export sales and order volumes recorded significant increases. In fact, the indicator for export sales volumes now stands at its highest level since the first quarter of 2003," she said.
The BER manufacturing survey for the first quarter of 2013 was conducted between January 29 and April 2. It reflects the perceptions and expectations of 242 respondents in 19 sub-sectors. The results reflect trends and not absolute magnitudes.
IJssel de Schepper said the weakening of the rand exchange rate probably supported the improvement, as manufacturers had indicated they were able to significantly push up export selling prices.
On the other hand, domestic indicators had fallen back from the highs recorded during the final quarter of 2012.
Both domestic sales and order volumes were expected to retreat further in the second quarter of 2013, she said.
Production volume growth remained virtually unchanged from the fourth quarter of 2012.
Better-than-expected demand, without an acceleration in production volume growth, caused the indicator of final goods stock levels to fall to a five-year low in the first quarter of 2013.
Input cost pressures rose, with manufacturers reporting higher labour and raw material costs.
"The higher raw material cost could have been caused by the weaker exchange rate increasing the cost of imported goods," said IJssel de Schepper.
However, manufacturers were able to defend their profitability by increasing selling price inflation, with not only export but also domestic selling prices rising at a fast pace. Manufacturers expected an increase in total fixed investment in 12 months.
Despite the improvement in business confidence, manufacturers made significant downward adjustment to expectations regarding business conditions in 12 months.
"Manufacturers have not been this pessimistic about the future since the first quarter of 2009," she said.
Manufacturers reflected uncertainty in rating of the general political climate as a constraint to business.
The indicator remained at 73, which is the highest reading since the third quarter of 1993.